Marginal Analysis and Monopolistically Competitive Company - Essay Example

 When the company goes on increasing the quantity, the marginal revenue keeps on increasing as well. There comes a point where marginal cost exceeds the marginal revenue. Therefore, a company keeps on increasing the quantity of output until marginal revenue equals marginal cost at which point the change in profit (marginal revenue – marginal cost) equals zero (Mankiw, 2008) and the ratio of MR to MC also equals zero. The above table shows that the marginal revenue keeps decreasing linearly with each increasing quantity of output. The marginal cost stayed constant from quantities of 1 to 2 after which it kept increasing linearly with increasing quantity of output.

From the above table, it can be observed that the MR keeps increasing as the number of widgets produced is increased. However, from a quantity of 7 widgets onwards, the MR keeps decreasing. Finally, at a quantity of 8 widgets, the MR equals MC which is the point at which the profit is maximal.
E
MR keeps increasing with increasing quantity of output (widgets) however there comes a point (15 widgets) where the MC exceeds MR. Thus, when MR exceeds MC the quantity produced should be increased until before MR equals MC.
F
When MC is greater than MR, the quantity of output (widgets) should be decreased so as to enable maximal profit. Otherwise, the company may incur a loss.
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